Global equity markets gained another 2% - 4%, which feels very positive but still like slightly less for Canadian investors after adjusting for a 1% - 2% drag from currency.
That notwithstanding, market momentum has decelerated somewhat over the last week. Part of this is because of the 10%+ rebound from December’s lows, which means that equities have now recovered more than half of their Q4 drop. The other part is because we have entered a no-man’s land for the two major themes driving markets: 1) the Fed is clearly on pause until further notice; and, 2) while very important US-China trade talks will be held this week (Vice Premier Liu with Lighthizer and Mnuchin), any clarity is unlikely until closer to the March 1st deadline. Progress in secondary themes like Brexit and the Section 232 report on auto tariffs are also on pause for the time being.
In the meantime, Q4 corporate earnings have been delivering. About 25% of S&P 500 companies have reported so far, and over 70% have exceeded Wall St. estimates (for average YoY gain of 10%). Interestingly, the sectors that have disappointed so far are Utilities, Real Estate and Staples – all sectors that are up since October.
On the other hand, guidance has been flat or negative relative to estimates for almost all companies providing it. Of course this bears attention and on the surface seems like a red-flag, but I maintain that management teams are more likely embracing the spirit of “never letting a good crisis go to waste” by giving themselves targets that are easy to beat this year.